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Are We Headed for a Recession - The Wrong Question!

Investing

Are we headed for a recession? According to the media, a recession is just around the corner. But wait, aren't we always headed for a recession? In our economy there are two cycles, growth, which we are currently in and recession, the last one being in 2008. So, by definition, since we are in a growth cycle, we must be headed for a recession. 

That brings up the next question, when? The current media is talking a lot about the "inverted yield curve". What is an inverted yield curve? - An inverted yield curve happens when shorter duration Treasuries provide a higher yield than longer duration Treasuries.  Currently ten-year Treasuries (long term) are yielding just under 2.1% and three-month Treasuries (short term) are yielding 2.3%. Thus, we have an inverted yield curve. 

Why is that important?  Over the past 50 years, a yield curve inversion lasting more than a month has preceded each of the last seven recessions. The time from when the yield curve inverts to the start of the recession has been anywhere from five to seventeen months.

Wait a minute – five to seventeen months or ½ to 1 ½ YEARS later! Wow, is that really a prediction? I don't think so, especially given the fact that over the past fifty years, recessions have lasted anywhere from six to eighteen months.

So, the real question that you should be asking is “What should my investments look like?” 

The answer – Have an investment plan that matches your financial needs and ignore the media hype. 

I recommend long term investors should:

  1. Have a balanced portfolio of stocks and bonds based upon age and risk tolerance.
  2. The portfolio should be rebalanced regularly – I recommend every three months.
  3. Have sufficient cash and other income resources (wages, pensions, etc.) that will cover your "must pay" items for at least two years.
  4. Ignore everything else.

Economics does not have to be complicated. All you need is a comprehensive investment and financial plan! I can help you with this part.